S&P 500 and Nasdaq Down 1.5% As Regional Banks Worries Mount

Barry Adams
25 Apr, 2023
New York City

Market indexes accelerated losses as the session progressed and tech stocks and regional banks led the decliners. 

First Republic Bank reported a sharp decline in deposits and despite the $30 billion deposits by some of the largest banks in support of the bank failed to stem market anxieties. 

Regional banks were among the leading decliners in today's session on the worries that banks are not out of the woods yet and higher rates next week will only bring more pain to the industry. 

Regional banks were under pressure after First Republic reported higher-than-expected deposit outflows and borrowings soared. 

Pacific West Bancorp, East West Bancorp, Zions Bancorporation and U.S. Bancorp declined between 3% and 5%. 

The sustained and rapid increase in interest rates are having negative impacts on government securities assets held by all banks, including regional, small and large. 

Moreover, if banks suffer deposit outflows, then the unrealized losses in treasury securities have to be realized to shore up capital or banks have to seek alternative capital infusion, which is hard to come by when depositors are leaving. 

More losses are on the way for many regional and large banks, if rates continue to rise at rapid pace, forcing more banks to seek capital infusion either from the Federal Reserve or from investors. 

The Federal Reserve may have to provide additional liquidity to stressed regional banks. meaning more quantitative easing, while the central bank is conducting its quantitative tightening. 

Moreover, the stress test conducted by the Federal Reserve over the last decade failed to consider how banks will be impacted in the event of rapid increase in interest rates and many regional banks including Silicon Valley Bank were exempted from the tests. 

On the earnings front, investors were disappointed after UPS reported a decline in revenue and earnings and PepsiCo and Nestle reported weak quarterly results despite double digit price increases in many business segments. 

The familiar pattern of higher sales, driven by price increases and weaker volumes or transactions was on display in the current batch of earnings. 

Investors stayed on the sidelines as the broader market indexes and tech indexes accelerated declines above 1.5%. 

 

New Home Sales Unexpectedly Soared In March 

New home sales unexpectedly increased in March, the latest data from the Commerce Department showed Tuesday. 

New home sales in March rose 9.6% from the previous month to $683,000 and February home sales were revised to 623,000, but 3.4% lower than in the month a year ago. 

The median sales price of new homes sold in March was $449,800 and the average sales price was $562,400.

Sales soared 170.8% to 65,000 in the Northeast, 29.8% to 161,000 in the West and 6% to 71,000 in the Midwest but decreased 5.4% to 386,000 in the South. 

 

Indexes & Yields 

The S&P 500 index declined 1.3% to 4,084.97 and the Nasdaq Composite index dropped 1.6% to 11,847.87. 

The yield on 2-year Treasury notes eased to 3.96%, 10-year Treasury notes fell to 3.34% and 30-year Treasury bonds dropped to 3.66%. 

Crude oil decreased $1.90 to $76.86 a barrel and natural gas dropped 5 cents to $2.21 a thermal unit. 

 

Stock Movers 

First Republic Bank plunged 27.4% to $11.62 after the regional bank reported elevated deposit outflows.  

said revenue in the first quarter declined 13.4% from a year ago to $1.2 billion and net interest margin fell 19.4% to $923 million. 

Net income in the quarter declined 32.9% to $269 million from $401 million and diluted earnings per share fell to $1.23 from $2.0 a year ago. 

On the balance sheet front, loans increased 22.6% from a year ago to $173.3 million, total deposits 35.5% to $104.5 billion and borrowings soared by $101.2 billion to $106.7 billion. 

At the end of March, excluding the $30 billion of deposits made by the large U.S. banks, the bank's estimated uninsured deposits totaled $19.8 billion, or 27% of total deposits. 

Insured deposits fell moderately during the quarter and have "remained stable" from March 31 through April 21. 

PepsiCo Inc rose 2.4% to $189.99 after the food and beverage maker reported better-than-expected quarterly results. 

The company said first quarter revenue increased 10.2% to $17.8 billion and net income of $1.3 billion. 

The company lifted its full-year 2023 growth estimate of organic revenue to 8% from the previous estimate of 6% and  core constant currency earnings per share to 9% from 8%. 

United Parcel Service, Inc dropped 8.9% to $178.40 after the company reported weaker-than-expected quarterly results. 

Ameriprise Financial, Inc decreased 5.8% to $294.47 despite the financial services provider reported better-than-expected earnings. 

 

European markets lacked direction for the third day in a row and investors digested a slew of earnings announcements. 

Banks were in focus after Spain-based Santander reported better-than-expected quarterly results but the Switzerland-based UBS reported a sharp decline in earnings. 

Novartis, Associated British Foods, Whitbread and Daimler Truck were among the leading European companies reporting better-than-expected quarterly results. 

Despite the improving quarterly results from European companies, benchmark indexes trended lower on the worries of future rate hikes and slowing economic activities. 

 

UK Government Debt Expanded In March 

The UK government's borrowing increased by £21.53 billion in March of 2023, higher than £16.3 billion in the month a year ago, the Office for National Statistics reported Tuesday. 

The UK government's receipts rose 2.3% to £88.8 billion and spending advanced 19.9% to £110.3 billion, reflecting a surge in energy subsidies by £8.0 billion to households and businesses. 

Over the twelve months to March 2023, borrowing increased to £139.2 billion or 5.5% of the GDP, £18.1 billion more than in the previous 12 month period and the fourth-highest borrowing since records began in 1946. 

 

Indexes & Yields 

The DAX index index increased 8.18 points to 15,872.13, the CAC-40 index declined 42.25 points to 7,53160 and the FTSE 100 index dropped 21.70 points to  7,891.13. 

The yield on 10-year German Bunds eased to 2.44%, French bonds to 3.00%, the UK gilts to 3.73% and Italian bonds to 4.32%. 

The euro weakened to $1.10, the British pound to $1.24 and the Swiss franc to 88.69 cents. 

Brent crude oil decreased $2.03 to $80.68 a barrel and the Dutch TTF natural gas eased 33 cents to Є39.60 per MWh. 

 

Europe Stock Movers 

Alstom SA increased 1.1% to €21.92 after the French company won an €900 million order to supply trams to Quebec City, Canada. 

UBS Group AG decreased 1.9% to CHF 17.85 after the Swiss bank reported a 52% fall in its first quarter earnings, reflecting higher provision for U.S. litigation and weaker sales.  

ABB Ltd advanced 3.2% to CHF 32.69 after the Swiss engineering and construction company raised its full-year 2023 sales and earnings outlook. 

Jungheinrich AG soared 10.4% to €33.66 after the German forklift maker reported higher first quarter operating earnings and the company also lifted its full-year outlook. 

Daimler Truck Holding AG added 2.5% to €30.71 after the German heavy duty vehicle maker reported better-than-expected earnings. 

Novartis AG rose 2.7% to CHF 91.92 after the Swiss drug maker lifted its full-year 2023 outlook. 

Nestle SA advanced 1.1% to CHF 115.96 after the Swiss food products maker posted better-than-expected first quarter sales. 

Associated British Foods Plc decreased 3.4% to 2,001.0 pence after the owner of Primark reported a 3% decline in first-half profit. 

Ocado Group Plc advanced 1.4% to  512.80 pence after the online grocery company said it plans to stop operation at its Hatfield customer fulfillment center, impacting about 2,300 staff. 

Whitbread Plc soared 5.6% to 3,302.66 pence after the parent of Premier Inn after the company said its annual income surpassed pre-pandemic levels.